Bonus tax shows France and UK moving closer

They won't have Paris. London bankers who hoped to change their fiscal
domicile to avoid the UK's surprise bonus tax will not find refuge in the
French capital.

By Pierre Briançon, Reuters Breakingviews

4:29PM GMT 10 Dec 2009

In an obviously coordinated action, France is to follow suit and levy a similar one-off tax on 2009 bonuses above €27,000 (£24,300).

Bankers knew a second hit was coming on Thursday after Gordon Brown and Nicolas Sarkozy jointly penned a column in the Wall Street Journal calling a one-off bonus tax a "priority". The UK prime minister and the French president wrote that bonuses this year were mostly due to government support for the banking system. They added that any such action should be taken "at a global level".

One would expect Germany to impose the same tax soon. After all, Angela Merkel has long been, along with Sarkozy, a fierce advocate of strict bonus regulation. But in the last months her Christian Democrats (CDU) party has built a governing coalition with the free-market liberals of the Free Democrats (FDP). Her tough-on-banks stance may not find favour with her light-on-tax allies.

Whether or not Germany comes on board, Brown's and Sarko's bonus clampdown is a telling sign of European governments' impatience with what they call a "push back" by the banking industry seeking business as usual as if nothing had happened in the last two years. European banks have only themselves to blame for the new tax, which is based on moral grounds more than on financial or practical ones. That may not be the right principle for taxation. But bankers will not make new friends if they openly threaten to evade the tax by switching their traders' base abroad.

Brown and Sarkozy have said they will work together to ensure that in the future taxpayers won't have to pay for the risks taken by banks. While there is a clear message that this is a one-off tax, further tough measures may be on the way. And there may be more common ground on financial regulation between London and Paris than used to be the case.